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Vonage Hopes DSL Cures Ills

Vonage Holdings Corp. finally is branching out. The VoIP provider, which has struggled because of its “one-trick pony” business model, said on Thursday it will sell DSL by the end of the year.

Vonage will resell Covad Communications Group’s broadband service with maximum download speeds of 3mbps or 6mpbs. The move is meant to position the over-the-top VoIP provider as a heftier competitor against cable and telecom companies.

The news came the same day Vonage reported its first-quarter 2008 earnings. The company remains unprofitable, but narrowed its losses to $8.96 million, down from $72.3 million in the year-ago quarter. Sales rose 5 percent, from $195.9 million to $224.6 million, but Vonage only signed 30,000 net new customers. Churn also increased to 3.3 percent; it was 3 percent in the fourth quarter of 2007.

Jeffrey Citron, Vonage chairman and interim CEO, told analysts his company expects better days ahead now that it’s adding DSL service and refinancing outstanding debt that was due in December. The DSL also should provide significant margin for Vonage, he said, although he didn’t reveal how much the company will charge for its Internet access.

Vonage has struggled ever since its much-anticipated IPO backfired. Its over-the-top business model pushed it into a corner, causing investors and analysts to question the value of a company that only sold VoIP. Vonage last year restructured its management, brought Citron back as interim CEO and appears to be doing a better job of lowering customer acquisition costs – those expenses fell 21 percent in the first quarter from the same time a year earlier.

Vonage shares were down 1.6 percent, at $1.85, during early afternoon trading on Thursday.


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